Gemini Electronics Harvard Case Solution & Analysis

Gemini Electronics Case Study Solution

Problem Statement:

Although the financial performance of the company is improving till now but the pace of growth has been reduced drastically and almost all the ratios have moved adversely for the company, this represents the most significant problem for the company. Furthermore, the overseas competitors have reacted very aggressively to the strategies of Gemini by reducing their prices, it can be said that if their prices had been reduced to the prices of Gemini, the sales and profits of Gemini will be affected drastically thus creating another significant problem for the company.

Significant issues:

There are many issues in the business environment of Gemini, the poor economic environment, and increased competition from the overseas competitors which can be classified as the main issues. The economy of US has seen great financial recession in the recent times which not only affected the economy of US but also affected the global economy. The inflation is increasing and the spending of the customers on entertainment stuff is decreasing which is affecting the business of Gemini.

Another significant issue which Gemini is facing is the increased competition from the foreign suppliers and manufacturers of LCDs and Plasma TVs. After the initial launching of the products of Gemini Sony and Samsung didn’t reacted aggressively but after the business of Gemini has started to grow Sony and Samsung are competing with Gemini very aggressively. They are selling their products at substantially lower rates which is reducing the sales of Gemini and this also forced Gemini to reduce the prices of their goods which have affected their profit margins.

Financial performance evaluation:

Liquidity ratios:

The liquidity position of Gemini seems to be very positive, the current ratio and quick ratio of the company has increased in the past five years. The ideal current and quick ratio for any company operating in any industry should be 2:1 and 1:1 respectively, both the current and quick ratio of Gemini is above this pre-defined threshold which depicts the favorable liquidity position. The higher current and quick ratio depicts that Gemini have enough current assets to meet-up the current liabilities and the company will not have to obtain short-term loan to pay-off their current liabilities.

Profitability ratios:

The profitability position of the company also appears to be quite satisfactory, but it can be argued that the performance of the company is declining in terms of profits because all of the profitability ratios have been reduced in the last five years. Especially the net profit margin hasbeen reduced drastically, the main reason for the reduction in the net profit margin is the increased expenditure in the R&D which can be justified bythe expertise of the competitors.

The gross profit margin is also reduced which is also because of the policies of the competitors. Gemini ha sto reduce the prices of its products in order to compete with the customers which have affected the gross profit margin. The return on assets and return on equity is also moving on the same pattern, however the reduction in these ratios are slight and could be improved by undertaking minor strategies.

Efficiency ratios:

All the efficiency ratios have seen positive change for the company, the accounts receivable turnover days are decreasing which is quite good for the company. The customers have payed rapidly in the years 2008 and 2009 as compared to the previous years, this reduction in the accounts receivable turnover days will improve the liquidity position of the company and it also reduces the chances of bad debts which will result in the increase in profit margins.

The finished goods, WIP inventory and raw materials inventory turnover days are also reducing which will also have positive implications on the profits of the company. The holding cost will be minimized due to this and the changes of physical damage is also reduced as the company is holding the inventory for minimum periods thus increasing the profit margins.

Lastly the accounts payable turnover days are also reducing, it can be said that this reduction have both favorable and unfavorable consequences for the company. The liquidity position of Gemini could be affected as the company is settling the creditors quickly resulting in more cash outflows.

Gemini Electronics Harvard Case Solution & Analysis

 

 

On the other hand, the relations with the suppliers will be improved due to the reduction in payable days which will allow the company to purchase future materials at a lower rate. Furthermore, the company will also be able to take advantage from the early payment discounts which will improve the future profitability of the company..........................

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